German businesses and the self-employed took out large-scale new bank loans in the second quarter. that from Reconstruction Bank (KfW) calculated new credit business increased significantly by 21.3% year-on-year. This is close to information from KfW research a new record. The current KfW credit market outlook from October 2022 cites a combination of high financing requirements for working capital and storage, necessary support for energy companies and a weak previous year’s figure due to the corona pandemic as a cause. Above all, the ever-increasing costs of intermediate goods and the massive increase in energy prices would continue to put pressure on corporate liquidity planning. Additionally, material bottlenecks in Germany mean that expanding inventories is important to ensure a smooth production process. Again, additional funding needs would arise.
more cautious loans
At the same time, according to KfW research, it can be seen that the financing conditions for companies are becoming increasingly bleak. In concrete terms, this is reflected in the form of an increase in interest rates and a significant tightening of banks’ lending policies towards medium-sized enterprises. In August, for example, banks were charging around 3% interest on long-term loans. Overall, according to KfW, there was an increase of 150 basis points in one year. Furthermore, banks would act with increasing caution in granting loans. As the “KfW-ifo credit hurdleshows that small and medium-sized enterprises (SMEs) are already experiencing significant difficulties in accessing credit. The percentage of PMIs that rated banks’ behavior towards them restrictive rose to a new high.
investments are declining
However, KfW expects high liquidity needs to continue to dominate the market until the end of the year and ensure new spikes in loan growth. This is due, among other things, to the need of companies to adapt to the radically changed economic conditions. This is particularly true for the energy sector. In the longer term, however, KfW expects the weak economy to have a dampening effect on new lending. This is already evident in the decline in demand for investment financing.
As editor of the Unternehmeredition, Alexander Görbing reports regularly on company and economic events. His areas of interest include restructuring, M&A processes, financing and technology start-ups.
